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Divisional Income Statements and Return on Investment Analysis

E.F. Lynch Company is a diversified investment company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions for the year ended June 30, 20Y8, are as follows:

	Mutual Fund Division		Electronic Brokerage Division		Investment Banking Division
Fee revenue	$2,400,000		$2,500,000		$2,410,000
Operating expenses	1,291,200		1,186,000		1,822,000
Invested assets	8,800,000		7,300,000		4,900,000

The management of E.F. Lynch Company is evaluating each division as a basis for planning a future expansion of operations.

Required:

1. Prepare condensed divisional income statements for the three divisions, assuming that there were no service department cost allocations.

E.F. Lynch Company
Divisional Income Statements
For the Year Ended June 30, 20Y8
	Mutual Fund Division	Electronic Brokerage Division	Investment Banking Division
Fee revenue	$fill in the blank	$fill in the blank	$fill in the blank
Operating expenses	fill in the blank	fill in the blank	fill in the blank
Income from operations	$fill in the blank	$fill in the blank	$fill in the blank

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1. For each division, subtract operating expenses from fee revenue.

2. Using the DuPont formula for return on investment, compute the profit margin, investment turnover, and return on investment for each division. Round your answers to one decimal place.

Division	Profit Margin	Investment Turnover	ROI
Mutual Fund Division	fill in the blank	fill in the blank	fill in the blank
Electronic Brokerage Division	fill in the blank	fill in the blank	fill in the blank
Investment Banking Division	fill in the blank	fill in the blank	fill in the blank

3. When faced with limited funds for expansion, management should consider an expansion of the Electronic Brokerage Division first.

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